Azul (AZUL) Stock Gains On Q2 Earnings And Revenue Beat

Azul S.A.’s (NYSE:AZUL) second-quarter 2019 earnings per ADS of 78 cents breezed past the Zacks Consensus Estimate of 9 cents. Moreover, the bottom line compared favorably with the year-ago figure. Results were aided by higher revenues.

Operating revenues in the quarter totaled $667.7 million (R$ 2,617.7 million), which outpaced the Zacks Consensus Estimate of $659.6 million. The top line also improved year over year, mainly on the back of high passenger revenues.

Passenger revenues, accounting for bulk (95%) of the top line, rose 30.5% on a year-over-year basis. This uptick can be attributed to solid demand for air travel among other factors.

Following Azul’s impressive quarterly performance, the stock gained 4.1% on Aug 8, closing the trading session at $41.66.

Operational Statistics

Consolidated revenue passenger kilometers (RPK) — measuring revenues generated per kilometer per passenger — increased 21.3% year over year. The metric was up 28.3% and 2.9% on the domestic and international fronts, respectively.

Consolidated, available seat kilometers (ASK) — measuring an airline's passenger carrying capacity — grew 15.5% year over year. While domestic capacity expanded 20.2%, international capacity was up 1.9%.

Additionally, consolidated load factor (percentage of seats filled with passengers) was 84.1% in the second quarter compared with 80.1% a year ago. This key metric improved as traffic growth outpaced capacity expansion.

Azul’s fleet modernization efforts are an added positive. During the quarter under review, the company was delivered four A320neos and one A330neo, ending the period with 29 next-generation aircraft. Azul exited the quarter with an operating fleet size of 130 jets. The average age of the fleet is 5.9 years.

Average fares at Azul, which competes with Copa Holdings (NYSE:CPA) , GOL Linhas (NYSE:GOL) and LATAM Airlines (NYSE:LTM) in the Latin-American aviation space, increased 9.7% in the quarter under review. While Passenger revenues per ASK increased 13%, total revenues per ASK improved 13.6% year over year. Also, Cost per ASK rose 9.9% due to factors like an 18.6% increase in fuel prices, and an 8.7% average depreciation in the Brazilian real and other factors. This metric, excluding fuel, increased 7.6% driven by a 19.8% rise in salaries, wages and benefits.

Azul, carrying a Zacks Rank #2 (Buy), exited the second quarter with total liquidity (cash, cash equivalents, short-term and long-term investments plus receivables) of R$4,212.3 million, reflecting an increase of 9.7% year over year. Additionally, total debt increased 9.9% to R$12.1 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2019 Outlook

Azul’s fleet size (operating) is expected to be 143 at the end of 2019. Fleet is anticipated to include 46 next-generation jets (38 A320neos, six Embraer E2s and two A330neos).

Furthermore, the company now expects consolidated ASK to grow in the 20-22% band (earlier outlook was in the 18-20% range). Cost per ASK is expected to be either flat or increase up to 2% (earlier guidance had called for a decline between 1% and 3%). Operating margin is still projected between 18% and 20%.

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